You are right about the digital filters and since upon the tap I am getting a sharp peak it had to do with the low pass filter, so I reduced the H3lis cut off to 37 Hz and now the response upon short taps doesn't exceed 3g.
So, lowering the cutoff for H3lis improves the situation, but now the other problem is that the cutoff is not programmable rather tied to the output data rate (ODR) of the sensor. So, inorder to get 37 HZ, the ODR was set at 50Hz where as I was using 400 Hz before that.
Any ideas on keeping the ODR 400 Hz but reducing the cutoff to say 37 Hz. May be implementing a digital low pass filter, I am already doing a simple averaging.