The deal, which did not materialise, was reached amid opposition from the US which is battling the Taliban in neighbouring Afghanistan.
The charges in the complaint against Muhammed, who is the father-in-law of Maulana Fazllulah, the leader of the Taliban in Swat, stem from comments he made during an April speech in which he condemned democracy and elections and said Pakistan's constitution was un-Islamic.
The speech was considered to be an important factor in shifting public opinion against the Taliban.
Mohammed leads a group known as the Tehrik Nifaz-e-Shariat Mohammedi, or the Movement for the Enforcement of Islamic Law.
Pakistan's government relied heavily on Muhammad's contacts with the Taliban in the Swat area to try to achieve a peace agreement earlier this year.
He was jailed in 2002 but was freed last year after he renounced violence.
The Pakistani military launched a major offensive aimed at pushing pro-Taliban fighters out of the Swat after the peace deal with the government collapsed in April.
The fighting left more than 1,800 Taliban fighters dead, according to the military.
But analysts said that many of the fighters simply melted away into other areas in the face of the military onslaught.
Frequent skirmishes continue though Yusuf Reza Gilani, Pakistan's prime minister, last month declared that the Taliban fighters had been "eliminated" in the region.