How do I use the DAC in my Arcam AVR 300 for CD

Hi.I'm using a NAD T 533 DVD as my source but want to utilize the DAC from the AVR 300 for CD palyback.
I have digital out optical and coaxial on the back of the NAD. There is a digital in Coaxial for CD on the back of the Arcam and some Optical digital in for PVR,etc.There is also a coaxial and optical digital out connector on the back of the Arcam but not labelled CD,DVD, or anything. I don't hear any difference in sound quality from simply connecting the cables from the digital out on the NAD to the digital in on the Arcam receiver.
Was also wondering whether I will still be able to use CD direct mode while using the Arcam DAC.
Would be greatly be appreciated if someone could fill me in on what I'm missing here...

Regards John
digital coax out from NAD to digital in for CD on Arcam would be the easiest. You could actually use any coax or optical digital in but if you use (or significant other) are remote-challenged, I'd stick w the first choice.
Hi and thanx.I have the coax connected as described but havn't noticed any improvements. Referring to the remote do you mean I need to configure settings in order to use the Arcam's DAC?
Maybe the DAC in the NAD is as "good" as the one in the AVR, or possibly your system cannot resolve the difference. Regarding the remote, if you use a different input than what the AVR has assigned as Cd, then the remote commands and macros you may have put together will select the wrong input if you push the CD button. IOW, if you use the VCR input, you'd have to select VCR to hear the CDP.