i do not think that surgery is a good idea as i believe that the problem will not go away if your cut a piece of your lips.
what kind of cream were you subscribed by your doctor ?, i used to use aquasol a (vitamin a cream) which was for general use (i do not know if it was for acne) but there is no more on market.
strong vitamin a creams have side effects such as dry skin and exfoliation that's why when you put high dose on your face it was burnt. maybe try low dose or even make your own cream by using normal hand cream (i have read that some persons have used baby creams which are more natural) with some drops of vitamin a.
a very good solution is that you eat carrots every day it really helps and leave your lips alone without pealing them even though the are awful, you will see that the cycle will increase and next time the crust will be better and thinner.