It can be out and still work obviously a slight tolerance, ideally of course you would have it right, more importantly is the teeth and that it can referance these ok, now we know it was working fine until the flywheel was refaced. Did the flywheel go back in exactly the same position as it came out? if not this will be your problem it needs to be as otherwise it will be out of time with rest of engine and hence CPS will not be reading correct.

Martin