I think Roger, you could well be right about padding out the oil seal. But the order of assembly is coupling gear onto crank, then steel washer then oil seal. If you put some oil on the inner face of the oil seal, fit it, then run round the threads between coupling gear and oil seal with a jeweller's screwdriver you can seat the oil seal right to the back of the recess, against the steel washer and coupling gear. The front lip of the oil seal goes against the outer of the bearing in the coupling gear cover. Again, a bit of oil helps it seat.
Does the oil seal work? Is it necessary?
On my first (1948) 4G I didn't have the oil seal, or any problems. When I built my present (1936 built but 1937 model year) 4G I didn't fit an oil seal. Why would I? Then I found that the sheer volume of oil coming into the primary case on this bike made fitting one imperative. It stopped the flow of oil into the primary case at a stroke. So they do work. No, I can't tell you whether or why you might need one on your particular bike.
36 4G, 37 VH, 54 KH(A), 75 Healey 1000/4, 52/53 ex ISDT KHA (project).
Former Machine Registrar & Archivist, General Secretary and Single Spares Organiser (over a 25 year period).
Now Archivist once more - but not Machine Registrar.