The peep sights that I have seen were all flush with the tang when folded down. Adjustment of windage and elevation by 2 tiny bars in dovetails. These were very common on better guns.
Here is an example:
http://www.egunn.de/market/item.php?id=1462207&PHPSESSID=6b1b226d45b5281bf6d364a80...

But the type on this Scherping rifle is new to me

Fuhrmann