King Harischandra arranged Shunahshepa, a brahmin boy for sacrifice to be given to Lord Varuna in place of his son Lohita which is a sin. [Reference - Ithareya Brahmana Panchika 7 Adhyaya 3]
Still, he is called Satya Harischandra. On what basis Maharshi Vasishta justified this?
From wikipedia :
King Harishchandra of the Ikshvaku dynasty had 100 wives, but no son. On advice of the sage Narada, he prayed to the deity Varuna for a son. Varuna granted the boon, in exchange for an assurance that Harishchandra would make a sacrifice to Varuna in the future. As a result of this boon, a son named Rohita (or Rohitaswa) was born to the king. After his birth, Varuna came to Harishchandra and demanded that the child be sacrificed to him. The king postponed the sacrifice multiple times citing various reasons, but finally agreed to it when Rohita became an adult. Rohita refused to be sacrificed and escaped to forest. An angry Varuna afflicted Harishchandra with a stomach illness. Rohita intermittently visited his father, but on advice of Indra, never agreed to the sacrifice.
In the sixth year of wandering in the forest, Rohita met a starving Brahmin named Ajigarta Sauyavasi, a descendant of Angiras. Ajigarta had three sons. Rohita offered Ajigarta a hundred cows in exchange for one of his sons to be sacrificed to Varuna in his place. Ajigarta agreed to the offer. He didn't want his eldest son to be sacrificed, and his wife didn't want their youngest son to be sacrificed. So, Shunahshepa—the middle son—was chosen for the sacrifice. Rohita then gave a hundred cows to Ajigarta, and took Shunahshepa and Ajigarta to the royal palace.
Varuna agreed to the replacement on the basis that a Brahmin was a worthy substitute for a Kshatriya. King Harishchandra combined the sacrifice with his own Rajasuya ceremony. Four priests were called to conduct the sacrifice: Ayasya (the udgatr), Jamadagni (the adhvaryu), Vashistha (the brahman) and Vishvamitra (the hotar). However, all of them refused to bind Shunahshepa to the sacrificial post. Ajigarta then offered to bind his son for another hundred cows. Rohita accepted the offer, and Ajigarta bound Shunahshepa to the post. However, the priests refused to slaughter him. Ajigarta then offered to sacrifice his own son in exchange for another hundred cows. The prince agreed to his demand. As Ajigarta readied to kill his own son, Shunahshepa prayed to the Rigvedic deities. With his last hymn, which invoked Ushas (the deity of the dawn), his bonds were loosened and King Harishchandra was also cured of his illness.
It was Rohita, who refused to be sacrificed (at the advice on Indra), not Harischandra. In your question, you mentioned 'Harischandra arranged'.. It was Rohita who arranged an exchange with Ajigarta, which Varuna agreed to.
Satya Harischandra is called so because he never lied.
A common definition of lie is something said or done to deceive another person intentionally. The shastra definition of truth is 'Satyam Bhoota Hitam Proktam' - that which is said in the benefit of beings (in some cases even common lie becomes vedic truth).
Anyways, since the other party here, Varuna, agreed to both the postponements of Rohita's sacrifice, and Rohita's offer to exchange himself with another person, who was also eventually saved by Rishis, where is the problem ?
